Investing in stock market is simple with these great tips

tipsTop Tips For Investing In The Stock Market.

There is money to be made in stocks. So whether you have a ‘do it yourself’ 401k pension plan or perhaps just some surplus cash that you want to have work for you, here are some top tips to reduce the risks of loss and improve the chances of gain. The topmost tip of all tips is to never risk more than you can afford to lose and remember that stocks are a long-term investment when investing for retirement. The nature of stock value is long slow appreciation with regular sudden slumps as in 2008.

A second top tip is to not invest in stocks or anything else for that matter if you have some outstanding debts. It is a far better investment to pay up these before getting into stocks. This is especially the case if you have unsecured credit card balances where the interest rate is very high. A third top tip is to keep personal control of your stock trades in order to save paying large amounts in fees to brokers.

Remaining flexible and able to get out of the stock market when you believe the slump is about to happen is the best way to make money and avoid losses. This is an important element of a successful stock trading strategy along with buying particular stocks for profit.

Which stocks, of the thousands quoted on the New York Stock Exchange, are best for the small investor? Stick with large companies but not the largest most widely held companies. These Dow Jones Industrial average companies tend to have smaller price fluctuations than those in the Russell 2000 or NASDAQ composite. Use your common sense and pick stocks that you understand. Look for those companies whose products or services you personally use and like.

When it comes to actually doing the trade there are 3 specific profit signs to look for.

  1. Do not buy stocks when the price is at it’s highest. Use your broker trading platform graphs to show the stock price trend over the last 3 years. Any stock where the price is one-third below its peak has room to make profit.
  2. Do buy stocks in the last quarter of the financial year of the company. This is so that you don’t have more than 3 months to wait for the dividend payout.
  3. Do set a profit target and stick to it. So for example, calculate the total cost of your trade for the stock ‘Acme Dynamite’. This will be the number of shares you buy times the buying price and remember to add on the costs of dealing twice (once when you buy and once when you sell). Then say you want a 10% profit, which is not unrealistic when trading stocks; you simply add ten percent to this total. Then divide the profit target figure by the number of shares to find the price at which you will sell the stocks and realize your profit. With all stock trading platforms you will be able to automate the selling transaction so if the price rises suddenly and you aren’t sitting on your PC watching you can realize your profit without actually pressing the buttons yourself.

A further top tip is to not put all of your stock trading funds into just one stock or even one stock market sector. For ease of reference the Stock Exchange displays stocks in groups or sectors such as ‘industrials’, ‘food’ or ‘pharmaceuticals’ for example. Stock prices within sectors tend to move in the same general direction. So it is a wise investor who spreads the risk by trading in a variety of stocks at any one time.

Stock prices in general can go down as well as up and so can individual company stock prices. The aim of the strategy outlined here is to reduce the risks of holding a stock at the wrong time or at the wrong price. You could of course wear a blindfold and choose to buy stocks at random like ‘pinning the tail on the donkey’ at a children’s party. However a top tip is to do the necessary research into the performance and background of each stock that fit the three profit criteria above.

Stock prices are very much influenced by sentiment and emotion. So it is important to read the press releases and reviews around any potential stock. Most companies will have solid performance records and pay annual dividends much higher than the rates of interest available on a standard bank deposit account. When press commentary on any company begins to sound negative it is a warning sign that says move on to a different target buy.

Internal quality failures such as product recalls are very damaging to a company’s reputation. When they are serious enough to attract media attention then it is probably the tip of a weak management iceberg. So again the top tip is to move on to other more promising stock purchases.

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Investing guide for beginners: A simple How to get started

investing guideInvesting Guide For Beginners.

Why invest your money at all? Why not just stuff your cash under your mattress and spend it when you need to? This is probably the safest way to handle your money but unfortunately your ‘nest egg’ will actually lose value over time because of inflation. You do need to invest just to maintain the value of your money. Putting it into a bank deposit account to earn a little interest is the least you should do.

The emphasis in this kind of minimum risk investment plan is on ‘a little’. Basic saving interest rates rarely pays more than inflation. Also banks are perhaps no longer seen as the rock solid institutions that they once were. Lehman Brothers, Bear Stearns and even the national bank of Iceland have seen to this.

Investment is different than saving. Investment is about growing your surplus money. Surplus money is that money that is left over at the end of the month, when all your financial commitments have been met. Investing is like filling the bath. The first thing you need to do is put the plug in. In money terms this means paying up any debts that you may have before you think about investing for growth. You will save far more money by closing out any credit card balances, than you can possibly earn from savings interest.

If you are a homeowner with a mortgage then you are already investing for growth and there is a lot more value to be had in paying off your outstanding mortgage. Any surplus money that you have each month reduces the amount of mortgage interest that you will pay over your mortgage term and it also increase the equity that you have in your home.

There is a second and equally important reason to invest any surplus money you may have and that is to build a pot of money for your retirement when you will no longer earn a regular wage.

A third reason to invest is it to give yourself choices in life, for instance how much work to do or even if to work at all.

Bonds or Certificates of Deposit (CDs) are a very safe virtually risk-free way to invest. When you put money into state government bonds for instance you are lending the government money and you will get that money repaid after the term of the bond and a little interest on top that will probably beat inflation.

Bonds and CDs are the lowest level in a hierarchy of risk. All other higher levels of investment have a higher chance of the organization that you lend to going bankrupt and taking your money away with it. As a general rule however, the greater the risk of the payer defaulting the greater the return on your investment. For the first time investor the risk versus reward decision is the hardest to take. Many people, new to investment are unaware of the less traditional methods of making your money earn more money, such as self-directed IRA’s (Individual Retirement Account). You could for example use your self-directed IRA to buy real estate, undeveloped land, shares in office complexes, vacation rental property or condos and apartment buildings. Real estate is a more secure investment because you have shares in real physical assets. Even if you don’t want to get involved in property management you can still invest in real estate with a share in Real Estate Investment Trusts.

Investing in stocks has always been an effective way of growing money values, often many times greater than inflation. But there are risks involved in the stock market to go along with the higher returns. As with real estate you do not have to become a stockbroker to buy into stocks because you can purchase shares in ‘mutual funds’. Your money goes into a big pot and the fund managers actively manage a portfolio of stocks on behalf of you and all the other investors in the fund.

‘Investment securities’ is a general name for any investment where your money is lent to another party with the intention of earning a regular return. More often than not these are the province of individuals of ‘high net worth’. You would need a minimum of $1 million or be earning $200,000 each year for the last two years and to join this investment club. An example of an investment security would be a private offering of a share in a real estate deal to build and rent an apartment block. Here you would be one of small group of investors aiming to make double-digit returns or more, over say a five-year period.

The two golden rules when considering investing for the first time are:

  1. Don’t put all of you surplus money into a single investment vehicle. Take some stocks here, a little real estate there and over here some rock solid government bonds or ‘Treasury Bills. It is called diversification to spread the risk.
  2. Never invest more than you can afford to lose.

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Money investing explained for beginners in this simple tutorial

stepping-stonesFour Stepping Stones To Profitably Investing Your Money

There are all kinds of investment vehicles around for you to make money with your money. The most common investment vehicles are stocks, stocks through a mutual fund, real estate, real estate investment trusts (REITs), bonds and investment securities. But really the choice of investment vehicle is the fourth stepping-stone towards profitable investment. Here are the four stepping-stones in the order in which they need to be taken

  1. Become debt-free. Dollar for dollar any investment returns will be much lower than the interest you pay out on unsecured debt such as credit cards and even on secured debt such as your mortgage. So it doesn’t make economic sense to put money into an investment vehicle at the same time as you are paying off debts. Put
    another way the most profitable investment vehicle you can have is to pay up your credit cards, live within your income and pay up your mortgage as soon as is humanly possible. Did you know that most investors never get to hear about the most profitable investment opportunities available in America today? The really profitable investment opportunities, like real estate securities with double digit earnings are only available to ‘accredited’ investors. The Securities Act defines accredited investors as high net worth people with at least $1 million or who have made at least $200,000 each year for the last two years and have “the expectation to make the same amount this year.” Are you an accredited investor? Many people may be surprised to realize that they are. The wealth things that most people forget about is the equity in their home and the value of their Individual Retirement Accounts and 401Ks.
  2. Decide whether to self-manage or put your money in ‘professional’ hands. When you are debt-free and have some money to invest are you going to manage your own portfolio or put it in the hands of a broker, banker or fund manager? All the information you need to self-manage is available on the Internet these days and you can avoid large amounts of commission and fees to make your investments all the more profitable.
  3. Pick the right moment in time to invest. Economic boom and bust is a fact of life for all investors. So the best time to invest is at the bottom of the cycle and on the up-slope as at this present time in autumn 2009. Set your profit targets and stick to them. Do not hold on to stocks for instance in the false belief that they will grow in value forever.
  4. Choose the best tactical investment vehicles: Investment vehicles fall into two broad categories. Those based on ‘real’ assets such as real estate (there is a clue in the name) or REITs and those based on money and less real assets such as mutual funds, bonds, futures or financial derivatives. Investment securities are any deal that takes your money and uses it to make more money. Securities can be any note or evidence of indebtedness and certificate of interest or participation in any profit-sharing agreement.

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Investing pre-tax compared to saving is much better!

So many people choose to save money on their own instead of investing in a 401k, IRA, Roth IRA, 403b, 457b, or whatever other investment plan they would choose, it is silly. I’ve heard person after person say “I can’t afford to invest in my 401k, I just don’t have the money to do it, I have living expenses you know, I would rather just save on my own.” When I tell them they could actually end up with more money in their pocket by investing compared to saving, most don’t believe me, but they should. Let me show you an example from my first lesson, that will prove that you can and will increase your net pay if you invest compared to saving on your own.

Below, I will talk about two brothers, one whom chooses not to invest through his 401k plan, rather into savings after he gets his paycheck – and the other whom knows he will have more money than his brother at the end of the day by investing pre-tax:

Billy Bob makes $30,000 a year, but invests no money, rather he saves about $1,500 a year from his paychecks. His taxable income would be $30,000. Let’s say his tax rate is 25%. He would pay about $7,500 in taxes, and his take home pay for the year would be $22,500 (30,000 X .25 = 7,500 and 30,000 – 7,500 = 22,500). Billy Bob then puts aside 1,500 in savings, for a net of $21,000 for living expenses at the end of the year.

Freddy, Billy Bob’s brother, makes the same amount of $30,000 per year, however, Freddy participates in his companies’ 401k plan, and he contributes 5% of his wages to be invested. So, Freddy’s taxable income would be $30,000 less 5% or $1,500 (30,000 x.05 = 1,500 and 30,000 – 1,500 = 28,500) or $28,500. Taxed at the same 25%, Freddy would pay $7,125 in taxes (28,500 X .25 = 7,125). Freddy’s net pay for the year after investing would be $21,375.

The two brothers would have both set aside the same amount, however, Freddy would actually have $375 more in his pocket at the end of the year than Billy Bob (not to mention whatever amount his company matched in addition to what he invested! Billy Bob thought he was doing fine saving on his own, but actually he was hurting himself!

Do you believe me now? It truly pays to invest, especially when your company matches what you put in for FREE!

Now, some are still wondering or swearing at me: “What about the taxes on the 401k investments?” Yes, it is true you will have to pay these taxes some day. The above example shows the man chose to have his money deducted from his pay and invested pre-tax (in other words, the IRS will allow you the option, pay taxes now or later). The key here is, you would rather pay taxes later when your income is much lower (as it is when you retire), because you will be in a much lower tax bracket by then. Not to mention – you get the benefit of having all of those dollars you invested making you money instead of making the government money.

Not to mention, there is the potential that by investing you would even lower the tax bracket you are in, according to your taxable income, further raising your take home pay.

Now you see the benefits of investing, check out all of my lessons and articles for help in making sense of setting up your investments and help in selecting what investments are best for you.

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